One-two punch sends market to new heights

06/24/19
  • S&P 500 hit all-time highs amid friendly trade and Fed news
  • Oil, gold surge after Iran shoots down US drone
  • This week: G20 Summit, US-China trade talks, GDP

After a brief pause, the traders hit the “Play” button again last week, as the S&P 500 (SPX) leaped to consecutive record highs on Thursday and Friday in the aftermath of trade-friendly comments from the White House and some warm, fuzzy language about interest rates from the Federal Reserve.

Trading started with a yawn on Monday, but news Tuesday that President Trump would meet with Chinese President Xi Jinping at this week’s G20 meeting in Japan1 broke the SPX out of a one-week consolidation in dramatic fashion:

S&P 500 (SPX), 4/29/19–6/21/19. S&P 500 (SPX) price chart. Back on top.

Source: Power E*TRADE


That move may have taken some of the starch out of the market’s reaction to the Federal Reserve’s interest rate announcement on Wednesday—the central bank didn’t cut rates but gave its clearest signals yet that it would, possibly as soon as July.2 Although stocks rallied only modestly after the report, they got into gear Thursday, pushing the SPX to a new record high and close and shrugging off Iran’s admission that it shot down a US drone—an unwelcome piece of geopolitical news that helped light a fire under the crude oil and gold markets.

The SPX climbed to another record high in early trading Friday before exhaling into the weekend and posting a small loss for the day, something the Cboe Volatility Index (VIX) hinted was possible on Thursday. And while SPX may have gotten the headlines, the tech-centric Nasdaq 100 (NDX) enjoyed the week’s biggest gain:

US stock index performance table for week ending 6/21/19. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source: Power E*TRADE


Sector breakdown: The strongest S&P 500 sectors last week were energy (+5.1%), information technology (+3.3%), and health care (+3.1%). The weakest sectors were consumer staples (+0.1%), materials (+0.2%), and financials (+0.3%).

Power moves: The week started with a couple of impressive rallies—Sothebys (BID) skyrocketed +59% to $56.13, and Array Biopharma (ARRY) soared +57% to $46.44. Recent IPO Revolve (RVLV) jumped +15.01% to a record close of $46.96 on Wednesday.

On the downside, Biohaven Pharmaceutical (BHVN) dropped -24% to $43.82 on Tuesday, while Pier 1 (PIR) fell -23.82% to $10.36 on Thursday.

After a short squeeze, a long squeeze? On Tuesday Beyond Meat (BYND)—who else?—rallied 19% to a record high of $201.88 before falling -16% to close down on the day at $169.89. By the end of the week the stock had fallen nearly -24% from Tuesday’s high, closing at $154.13.

Futures action: After Iran downed a US drone aircraft, August WTI crude oil (CLQ9) posted its biggest up day of the year on Thursday, a 6% leap above $57/barrel. The market rallied as high as $57.98 on Friday before closing around $57.65.

The geopolitical jitters unleashed by the event also pushed August gold (GCQ9) above $1,400/ounce by Friday—the first time the yellow metal had crossed that threshold since 2013.

Coming this week

GDP is coming Thursday, but there’s also more housing data, durable goods, and business inventory data—not to mention that G20 meeting where the US and China are once again supposed to get together to resolve trade issues:

Monday: Chicago Fed National Activity Index

Tuesday: S&P Corelogic Case-Shiller HPI, FHFA House Price Index, New Home Sales, Consumer Confidence

Wednesday: Durable Goods Orders, International Trade in Goods, Retail Inventories, Wholesale Inventories

Thursday: GDP, Corporate Profits, Pending Home Sales Index

Friday: Personal Income and Outlays, Consumer Sentiment, G20 meeting begins

Earnings this week include:

●Monday: Carnival (CCL)

●Tuesday: Lennar (LEN), FedEx Corp (FDX), Micron Technology (MU)

●Wednesday: Pier 1 Imports (PIR), General Mills (GIS), KB Home (KBH), Paychex (PAYX)              

●Thursday: Conagra (CAG), McCormick (MKC), Walgreens Boots Alliance (WBA), NIKE (NKE)     

Friday: Constellation Brands (STZ), JinkoSolar Holding (JKS)

IPOs this week include:

●Wednesday: Cambium Networks (CMBM)

●Thursday: Change Healthcare (CHNG), Morphic Holding (MORF), Priam Properties (PRMI), Bridgebio Pharma (BBIO).

Go to the E*TRADE market calendar (logon required) for an up-to-date earnings schedule and a complete list of splits, dividends, IPOs, and economic reports. The Active Trader Commentary also lists earnings announcements, IPOs and economic report times each morning.

Word on the Street

The case for providing accommodation has increased.

Fed Vice Chairman Richard Clarida on the prospect of cutting interest rates.3

What a difference a word makes. Last Wednesday’s Fed announcement contained exactly 14 more words than the central bank’s previous statement from May 1 (and if you read quickly enough, you may have missed them), but it may have been a missing word that the market found most encouraging.

While the May 1 press release stated the Fed would be “patient” in making any changes to the interest rates, the June 19 release dropped the “P” word—widely interpreted as a signal the central bank is ready to cut rates sooner rather than later,4 in light of what it saw as increased uncertainty in the economic outlook.

Fourteen additional words, and one conspicuous no-show. That’s all it takes sometimes to move the markets.

 

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1 Markets Insider. Trump to meet with China's Xi Jinping at the G20 in make or break trade-war showdown. 6/18/19.

2 CBSnews.com. Fed wary of economic clouds, but leaves interest rates unchanged for now. 6/18/19.

3 Bloomberg. Kashkari Says He Wanted Half-Point Rate Cut at Fed Meeting. 6/21/19.

4 CNBC.com. Traders are pricing in a 100% chance of at least one Fed rate cut in July. 6/19/19.

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